IndyMac: Stock is essentially worthless

An update to yesterday’s story about IndyMac:

Beleaguered bank IndyMac has had its price target cut to $0 from $1 after the company said that second quarter losses will be bigger than the $900 million loss racked up in the first quarter. Analysts at Friedman Billings Ramsay are not saying that the company will fail per se, just that there is no value left for shareholders. The stock last traded at around 70 cents.

This glum view was also fueled by news that the bank will fire half its employees and that it has been unable to raise additional capital. According to a Bloombergreport, the California- based lender was told by regulators that it is no longer “well capitalized.” IndyMac was the second-largest independent U.S. mortgage lender last year after Countrywide Financial, now owned by Bank of America (BAC).

“The big problem is that no one will give them money. There’s too much risk involved and not enough value in their franchise,” Jason Arnold, an analyst at RBC Capital Markets, told Bloomberg.

Soooo… the company’s stock has cratered to the point that it looks to be worthless, yet the company won’t have failed. Depends on your point of view… if I were a stockholder in IndyMac, I’d say it’s failed.

This won’t be the last major bank to approach the Wall Street confessional, folks. There’s too much bad news churning around out there. I have no idea which bank will be next, or when that will happen, but there are other major holders of repackaged crap out there that will have to come clean sooner or later. My unscientific rule is that the higher an interest rate a bank is advertising for savings accounts, the uglier their reserve position is.

Hi Bart,
Well, thanks for alerting me to what was about to happen with IndyMac. There is that NYU professor whose name starts with N (you know who i mean, I forget) who predicted the meltdown would start in earnest with the failure of a major commercial bank. Well, hmmm. Besides IndyMac and Bank of America, how about Fannie Mae and Freddie Mac? whoo boy, 5 trillion or so at stake.
Anyway, for your reading, be sure to read the WSJ editorial on July 10 “The Price of Fannie Mae” — sobering, to say the least.
Do you think Countrywide will drag down Bank of America? (BofA is my bank) I understand that FDIC took over IndyMac. How far can FDIC’s generosity spread?
My career is in nuclear weapons disarmament, and this macro-economics is new to me. The first inklings I got that this was coming down was in 2005, when I worked with Michael Klare, author of Blood and Oil, and he gave a dyn-o-mite speech about just how vulnerable everything is.
Note, just as an oil-related aside, that the Iranian P.R. people were making a point that their recent military exercises included TORPEDOES — hardly hi-tech, impressive technology, WW I stuff– but the implication is hard to miss.
Klare’s newest book is over the global struggle for resources.
Anyway, I’m trying to hang on to that Chinese saying that in all crisis there is also opportunity. I hope we can seize opportunities that arise in this teachable moment.
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Thanks for your comment. I think you’re referring to uber-beat Nouriel Roubini? He’s been Mr. Debbie Downer for the last few years, and to most people’s annoyance, he’s been correct far more often than not.

Without knowing the true condition of either Countrywide or BOA, I have no way of knowing if Countrywide can take down your bank. I would guess that Countrywide has just as much toxic crapola on their books as IndyMac, since they were also very active in the CA mortgage market.

The FDIC’s job is to guarantee deposits up to a certain amount. The problem as I see it, is that the US Dollar is more or less a figment of our imagination… it is not backed by anything, and it’ worth is directly tied to people’s confidence in the currency and by how much is floating around. If Countrywide goes down and takes BOA with it, the FDIC will step in and cover savings accounts up to a given amount ($100,000?). If they are able to ‘cover’ your savings by creating more dollars out of thin air, you’ll have your money, but it will be worth less due to the expansion of the money supply. These are the big unknowns that worry me. We can always create more dollars if necessary… they just will buy less & less stuff over time if we keep printing money.

For what it’s worth, I’m an amateur at this econ stuff as well. I understand parts of it well, and other parts not very well at all. Do your due diligence, and if you’re truly worried about your holdings, by all means ask a professional…

I’ve read many of Prof. Klare’s pieces online over the last few years. His work has impressed me. I’ll try to acquire a reading copy of his newest book.

From what I can tell, our Iranian friends are playing games trying to jack the price of oil up and are playing some dangerous games with the USA & Israel. We’ll see if all this brinksmanship adds up to anything or not. Hopefully cooler heads will prevail in the end. I have no wish to see $10 gas any sooner than is absolutely necessary. 🙂